The money purchase annual allowance has increased from £4,000 to £10,000 this year. The money purchase annual allowance (MPAA) is the most you can put into a money purchase pension scheme per year and still get tax benefits.
A MPAA is a savings plan for retirement. You and sometimes your employer contribute money regularly. The pension fund is called a money purchase fund because you contribute money to buy investments like stocks, bonds, or mutual funds. The eventual value of the pension depends on the performance of these investments. When you retire, you can choose different ways to access the money, like getting a regular income or taking lump sums.
The increase from £4,000 to £10,000 represents a substantial expansion in the allowable annual contributions. Similar to the effects of the other changes above, the higher allowance means:
- Flexible Contributions: You can contribute flexibly to your money purchase pension schemes, customising your savings strategy to fit your financial needs.
- Enhanced Retirement Savings: You can put more money into your pension with the increased allowance. This could lead to a more significant retirement fund and financial security later.
- Tax Efficiency: With a more generous MPAA, you can optimise tax efficiency by benefiting from tax advantages on a larger part of your income. This further helps maximise retirement contributions.